Printing Money Proposed to Save Public Pensions

An article in Barron’s proposes using modern monetary theory to solve the issue of underfunded state public pensions.

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An article by  Randall W. Forsyth in Barron’s describes how public sector finances lag, despite recovery in home prices since the recession.

State and local pensions have $8.8 trillion of liabilities, of which only 52% is funded after a decadelong bull market. Falling interest rates have been a major propellant of higher asset prices, but also have lowered pension funds’ income.

The article describes the relatively low rates of return of pension funds, with the median public defined-pension plan’s return at 6.79% as of June 30.

Pensions & Investments reported recently on the number of states who have lowered their assumed rates of return in the past decade. The article quotes a National Association of State Retirement Administrators 2019 report stating,

“The sustained period of low interest rates since 2009 has caused many public pen- sion plans to re-evaluate their long-term expected returns, leading to an unprecedented number of reductions in plan investment return assumptions,” the report said.

For more information, see Public pension funds abandon 8% dreams.

As a way to keep the promises of pensions to retiring baby-boomers, the article in Barron’s proposes a fix: printing money. For more discussion on this approach, see How to Solve the Public Pension Crisis.

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